In Fitchburg, Elizabeth Warren blasts profits on student loans

U.S. Sen. Elizabeth Warren chats with students on her visit to Fitchburg State University on Friday to talk about college loans. (SENTINEL & ENTERPRISE/JOHN LOVE)

FITCHBURG - U.S. Sen. Elizabeth Warren said the government should stop earning profits on student loans during an appearance at Fitchburg State University's Holmes Dining Commons Friday afternoon.

"The United State government should not be making a profit off of students," said Warren, a Democrat. She called the practice of setting interest rates above the break-even point for the program "fundamentally wrong."

Warren was reacting to a government to a government report that revealed the federal government earned an estimated $66 billion in profit from student loans originated between 2007 and 2012. A previous congressional report estimated that the government will pocket an additional $185 billion in profits on new student loans made over the next 10 years.

Warren said the report shows the government is squeezing profits out of young people and adding to the mountain of debt they will spend the rest of their lives struggling to repay.

Warren is not looking at setting interest rates at zero, saying the government still needs to cover the costs of the program. Rather, she wants them at 3.9 percent, or lower, if congress is willing to increase revenues by raising taxes on the wealthiest Americans.

"If we can bring in more money, we'll use it dollar for dollar to bring the interest rate down even lower," said Warren.

Last July President Barack Obama signed into law a measure restoring lower interest rates for student loans for the 2013-2014 academic year.

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Under the terms of the bill, undergraduates were able to borrow at a 3.9 percent interest rate for subsidized and unsubsidized loans. Graduate students were given access to loans at 5.4 percent, and parents were able to borrow at 6.4 percent.

The rates are not permanent. The legislation offered lower rates this academic year because the government was able to borrow money cheaply at the time the bill was signed into law. If the economy continues to improve, it will become more costly for the government to borrow money , and that could be passed on to students.

Warren said with a 3.9 percent interest rate, the average student who borrowed for their undergraduate degree would save $1,000 a year in loans and cut nearly half off what they pay in interest over the life of the loan. Warren also spoke about ways to apply those lower rates to current college graduates by allowing them to refinance with the lower rate.

Three-fourths of current college students are enrolled in public colleges and universities and Warren said a generation ago, two-thirds of their tuition was covered by the government. Today it's down to one-third. She said this is because tuition rates have shot up, the number of students has increased and states have decreased their contributions into public colleges and universities.

Warren has a bill in the works aimed to halt tuition increases, but she said reducing interest rates is the low-hanging fruit.

"This one's not hard," said Warren. "There's going to be a lot of moving parts to how to bring down the cost of college overall. Refinancing student loans? This ones not hard."

Fitchburg Mayor Lisa Wong helped introduce Warren to the crowd, calling her "a strong voice for us at the federal level."

Sophomore photography major Victoria George, 19, is from Rhode Island. Both of her parents were laid off from work and she said financing school has been a struggle.

"I'm willing to get behind someone who supports students regardless of party," she said. "I'm grateful that we finally have someone."

Material from the Associated Press was used in this report.

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